After you have worked through this section of the learning unit, you should be able to
- differentiate between two kinds of shifts, namely when the amount of resources and/or productivity for both products increase (shift of PPC) and when the production technique of one of the products improve (swivel of PPC)
Although these production possibilities curves are tools of theory, they do illustrate a number of vital principles such as scarcity, choice, opportunity cost, efficiency and inefficiency. In this section we will make use of these production possibilities curves to illustrate a number of important issues in economics.
What factors do you think can increase quantity and quality of factors of production? If you were asked to make the choice for Zanadu, which combination would you choose? Look at the options below. Select all the answers you think are relevant.
If you were asked to make the choice for Zanadu, which combination would you choose?
In fact all of these may increase the quantity and quality of factors of production
In our example of Zanadu, economic growth takes place if, at any combination, more laptops and/or more mobile phones are produced than before. Through economic growth it becomes possible for Zanadu to reach a point such as point G2, which we previously identified as unattainable.
This may be the result of an increase in the resources and/or an increase in technology that increases the productivity of the resources.
Shift of PPC
The impact of an increase in resources, which makes it possible for Zanadu to potentially produce both more laptops and mobile phones, can be represented graphically in the following diagram as an outward shift of the production possibilities curve:
Outward shift occurs due to an increase in resources and/or efficiency of resources
At each combination, more laptops and cell phones can be produced than before. If you compare points G2 and D you will see that the production of both laptops and mobile phones is higher.
Swivel of PPC
If a change in technology causes an improvement in the production of one of the goods, say, mobile phones, it implies that with the given resources, more mobile phones can be produced, and the maximum potential output for mobile phones increases from F to J. In this case, the maximum potential output for laptops is unchanged at A, and the production possibilities curve swivels outwards from AF to AJ. It is now possible, except at point A, to produce more mobile phones and laptops.
A change in efficiency in the production of mobile phones
Activity
Do the following activity to make sure you understand a change in production possibilities:
The President of Paradiso decides to stand for a third term, while the constitution only allows for two terms. This leads to political unrest that turns violent, and in the process, a number of food factories and gun factories are burnt down.
Which one of the following diagrams indicates the effect this would have on the production possibilities of Paradiso?
a. 
Think again.
The destruction of factories implies that the capacity of Paradiso decreases and its potential output for both guns and food thus declines. The different combinations of guns and food that can be produced by Paradiso are therefore lower and the production possibilities shift inwards.
b. 
Think again.
The destruction of factories implies that the capacity of Paradiso decreases and its potential output for both guns and food thus declines. The different combinations of guns and food that can be produced by Paradiso are therefore lower and the production possibilities shift inwards.
c. 
Correct.
The destruction of factories implies that the capacity of Paradiso decreases and its potential output for both guns and food thus declines. The different combinations of guns and food that can be produced by Paradiso are therefore lower and the production possibilities shift inwards.
d. 
Think again.
The destruction of factories implies that the capacity of Paradiso decreases and its potential output for both guns and food thus declines. The different combinations of guns and food that can be produced by Paradiso are therefore lower and the production possibilities shift inwards.
Which one of the following diagrams represents the impact of a new production design that would improve the production of food in Paradiso?
a.
Think again.
It implies that with the given resources more food could be produced and the maximum potential output for food would increase from A to G and the production possibilities curve would swivel outwards from FA to FG.
b.
Correct.
It implies that with the given resources more food could be produced and the maximum potential output for food would increase from A to G and the production possibilities curve would swivel outwards from FA to FG.
c.
Think again.
It implies that with the given resources more food could be produced and the maximum potential output for food would increase from A to G and the production possibilities curve would swivel outwards from FA to FG.
d.
Think again.
It implies that with the given resources more food could be produced and the maximum potential output for food would increase from A to G and the production possibilities curve would swivel outwards from FA to FG.